Editor's note: This guest post was written by Len Jordan, who is a venture partner at Madrona Venture Group and currently holds board seats at companies like Cedexis, MaxPoint Interactive, Zapd, Control4, DSIQ, Medio and Wetpaint.
Whenever I invest in a new company, I send the CEO my customary email with advice on how to work with his or her new board. I've spent 24 years in the software industry-including holding operating roles at three early-stage software companies and board seats at 12 startups-so I thought my “Top 10″ list on the care and feeding of board members might be helpful to other CEOs and executive as well.
So, without further ado, here it is:
1. Have a plan, and get your entire company and board to understand and support it.
A company's business plan and strategy is the map of where we are going. The plan almost certainly will change, but the best CEOs keep everyone informed about where we said we are going, where we are currently going, and why we changed plans if we did.
The plan should not be that complicated. Too many business plans use multisyllabic adjectives and adverbs-the plan should be simple even if the products are complicated. The essence of the business plan should be simple enough for a six year-old to read and understand.
We should agree on a plan that describes our target customer; the company's product; and competition. This plan informs the product roadmap (including timeline and hiring requirements, such as how many people you need to build, market and sell the product) and P&L (revenue, expense and net income) broken out by month and quarter and by R&D, sales and marketing and general-and-administrative expenses. The sales and marketing plan goes with this, including a product and pricing model.
The preference is to approve the above and then stay out of the CEO's way-the opportunity
cost of your time is incredibly high.
2. Tell us if the plan changes for "small reasons".
Most plans change for tactical reasons - e.g., the product is earlier/later than expected. Or customers are adopting/buying earlier/later than planned. I like a process in which, if the plan shifts, the CEO pre-emptively throttles the investment/spending without being asked. For example: tell us what level of business progress/metrics (e.g. downloads, installs, usage, trials, bookings, contracts closed, etc.) you want to see to feel good about spending to the plan (or below it if necessary), even if we are not yet certain about exceeding revenue during the current period.
Conversely, what level of progress above plan would make you want to invest more aggressively and what key investments (products, sales and marketing hires) would you make? Having the entire plan and contingencies agreed to ahead of time makes it a lot easier for you to do your job and for us to stay out of the way. Plans don't have to be perfect, and they change, especially at startups.
3. Tell us if the plan is changing a lot for "big reasons".
Sometimes plans need to change for strategic reasons. The best CEOs are continually testing and retesting their basic hypothesis. Is there still a fundamental problem we are solving, or market opportunity we are addressing? Are we still pursuing the right product? Are we selling to the right customers? Are the ways we are selling and marketing right for the market and product? Are we as competitive as we thought? Is our team as good as we had hoped?
Being a CEO is hard because you need to have conviction and commitment to a specific strategy, but you need to continuously challenge the assumptions underpinning it without whipsawing your team, customers and board. The best CEOs stay on-strategy, but are very deliberate when making strategic changes.
4. Strategy mistakes are harder to admit than execution mistakes.
It's hard to admit when a strategy is flawed. It's very easy, on the other hand, to decide that the market, customer and product thesis is correct but sales-and-marketing execution is weak. I've seen too many companies delay making a tough strategy choice by first trying to fix the flaw through a change in execution. If execution is flawed, fix it, but look beneath the veneer to make sure the substance underneath is sound.
5. The average of two strategies is usually not a strategy.
Whether you have a board or not, you have to commit to a cohesive strategy. In tennis you can play at the net or the baseline, and both can be great strategies, depending on the circumstances. The average of the two - playing in the middle of the court (commonly referred to as ‘no- man's-land') - is the worst place to play and is never a good strategy. Too many startups split the difference: They continue with the old strategy, add a new strategy (like a new product), under-resource both and fail at each.
Good strategy starts this way: Assess the company's essential attributes-market, team, product, customers, competition–and develop a simple one page SWOT (strengths, weaknesses, opportunities and threats) analysis. Frame alternatives, discuss tradeoffs with the board and make hard choices. The classic startup mistakes often consist of giving up on the right strategy too early, choosing the wrong new strategy, assuming the old strategy provides more benefit to the new strategy than it does or choosing, instead, to focus on both an old and new strategy out of fear of making the wrong choice. It is scary to have both feet and hands off the rock at the same time.
6. Email is good for delivering straightforward information; board meetings are good for explaining complicated information and discussing alternatives.
I love short (above the fold) weekly email updates from CEOs on key progress points (product development, hiring, revenue, key partnerships, etc.), but it's OK if they are less frequent (coming every other week, or once a month). But bad news should travel fast-this includes losing a key customer, a key engineer quitting, etc. The road has bumps; I'd rather know about it when it happens than after it leads to some other issue (like a product delay or a revenue miss). Also, I'd prefer that problems/opportunities not only get communicated, but that options be developed to address the problem or opportunity. Frame the situation and assess the pros and cons of a few choices-it makes it easier to help come up with a reasonable solution.
7. Board meetings are not pitches. You have our money, so let's figure out what to do with
The best way to earn trust from your board is not to tell us what's going well; it's to tell us what's not going well. Better yet, make everything run well but tell us the things you want to focus on that could become problems if not addressed. If you do #6 , the board meetings can be less about updating the board and more about discussing key strategic choices/decisions and ways we can better tune our execution. A basic review of financials, customer progress, product development, partnerships, hiring, etc. would be great, but we'd also like you to expose key strategy elements (SWOT) and get us to discuss and react.
Receiving board decks two days ahead of time means we can add more value in the board meeting. Also: The best companies can get the board deck down to 10-15 slides, max, especially if #6 is happening. Allocate time for strategic topics at key board meetings and from time to time, invite an outside/expert that can challenge the group at key strategic inflection points. Finally, as with any meeting, don't unveil controversial topics at board meetings for the first time. Give people a heads up ahead of time so they discuss the topic at an average blood pressure.
8. Ask for help - we work for you. Really.
We like helping recruit employees and partners (customers). Put us to work, let us brag about you to potential employees and provide context and support. We can assist with strategy questions. You should know more about the business than we do, but our distance can provide perspective. And perhaps we have seen patterns that can be applied from other experiences. This can be incredibly valuable as long as we don't over or mis-apply the patterns in the wrong instances based on the wrong attributes.
We are OK if you seldom call and are also OK if you call every day when we are working on something that requires it. We do appreciate just getting a check-in call from time to time. A little like calling your mom in college, sort of. If you only call to ask for money she will know something is up.
9. Involve your exec team with the board.
It's good practice to have at least one board member interview all exec hires; different perspectives can be good. Having the exec team in the board meetings can be great, especially if they present the area of their responsibility (product development, sales, marketing, finance). That said, it's also important to have a closed session of the board that is just the board plus counsel, to discuss board-only matters.
10. Tell us how we are doing.
We hope to add value but will make mistakes and can often manage things better. Tell us about these areas and we will try to get better. We will do the same with you. And tell us when we should stay out of the way - you run the company, and sometimes the best thing we can do to help is let you do that.
The average early stage company takes nine to 10 years before it will exit. So we likely are going to work together a long time. Let's make it productive, rewarding and fun.